Natural Gas Analysis for the Week of September 5, 2011

After spiking up to 4.13 after the release of last week’s inventory report and on speculation of a production shutdown because of a hurricane in the Gulf of Mexico, natural gas futures fell sharply. The trigger for the break was Friday’s bleak U.S. Non-Farm jobs report.

Technically, if one looks at the market over the past month, natural gas appears to be forming a support base although there is a bias to the downside. Since peaking in June, natural gas has walked down an important Gann angle from the 5.01 top.

Last week, this Gann angle stopped the rally at 4.13. This week the angle drops down to 3.97. Additional Gann angle resistance is at 4.04. After watching last week’s reaction to these angles, clearly a break through them to the upside will be a strong sign the market has bottomed.

Even if there is a strong breakout, however, the market is likely to run into a retracement zone formed by the 4.60 to 3.78 range. This retracement zone is at 4.19 to 4.29. On the downside, 3.00 to 2.90 appear to be the next major downside target.

Factors Affecting Natural Gas This Week:

• Weather. Natural gas firmed last week on speculation the hurricane in the Gulf of Mexico would curtail production. This support was withdrawn early after traders concluded the storm would be damaging and after realizing that production in the Gulf only accounts for 7.4% of production.

• Economy. Friday’s jobs report is a sign that the economy is continuing to falter and that a recession is possible. If the economy weakens then so will industrial production which has been helping to prop up natural gas prices. It goes without saying that a drop in production will drive gas prices lower.

• Federal Reserve. It’s a little bit of a long-shot, but bullish traders are hoping the Fed proposes stimulus later in the month to drive up demand.

• Labor Day. This is the wild-card. Often the natural gas market begins to rally after Labor Day. With the market hovering near its low for the year, it is possible that shorts have had enough. If a rally does begin, it is going to have to be driven by short-covering and bottom-picking.

By. FX Empire

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